Growing pains: we'll show you how to deal with a sudden expansion or an unforeseen slowdown in your business

Black Enterprise, March, 2005 by Donald Jay Korn

Kevin Brown remembers the heady days Of 1995 all too well. "I had just started my own marketing communications firm," says Brown, now 40. "A significance portion of the business was coming from dot-com companies [and] we also had some major banks and insurance companies as clients." Confident about the future growth of his former company, Strategic Marketing Resources, Brown bought land and built an $8 million plant in Alameda, California, near San Francisco and Oakland. "Besides the creative work," he says, "we wanted to do our own printing and mailing, without outsourcing. That's what differentiated our company from the competition. We had $6.5 million in annual sales and over 200 employees at the peak [of the business], as well as a state-of-the-art data security system to protect our customers' privacy."

Then the tech-stock bubble burst in 2000, dragging down the entire stock market and sending the economy into a recession. And after the 9-11 attacks in 2001 came the anthrax scare. "Direct mail was hit hard," says Brown. "We lost millions of dollars worth of orders we had booked. And we didn't have the reserves to keep paying all the overhead." Eventually, the plant was sold and Brown "got hammered," as he puts it. "In hindsight, the growth should have been projected out better."

Brown's experience is one of many good news-bad news dilemmas facing many entrepreneurs. Yes, you want your business to grow to enjoy future prosperity, but growing at a just-right pace is not easy. If you expand too rapidly, you may have to cope with unnecessary expenses. If you don't expand when you should, it can cost you valuable opportunities.

"I've learned how difficult it can be to fine-tune your growth," says Anita J. Hill, president and CEO of B&H International, an importer of lubricants in College Park, Georgia. "Not only can't you move too fast but if you move too slowly, your competition will find out what you're doing and take advantage."

Hill launched KDI Inc. in the 1990s to produce disposable baby bibs. "I started by outsourcing manufacturing to Mexico to cut costs," she explains, "and then switched to a company in North Carolina so the bibs could be made in America. At that point, we were selling to Kroger and Wal-Mart, and I thought things were going fine."

Unfortunately, the plant in North Carol in a couldn't conform to the production schedule Hill needed. "I was set to buy machinery and retool it to fit my process, but I wasn't sure if that was the right move, so I went to the Georgia institute of Technology's Economic Development Institute," she says. "The engineers there looked at the machinery, they looked at the facility I planned to use, and they looked at my process. They advised me not to bring manufacturing in-house. By slowing me down, they saved me from doing something I would have regretted."

However, Hill had been too slow to act in another area: gauging the size and scope of her potential market. "We did a survey [where we offered] a free bib and found there was a much larger demand than we had anticipated. By then, a major company had moved into our retail business so we got bumped from our shelf space. Next, the competition went after institutional customers, sending out free samples to our childcare center clients." After an encouraging beginning, Hill folded her baby bib business in 2002 with only $50,000 in revenues, grateful that she hadn't invested huge amounts in equipment. The experience brought home to Hill the importance of logistics in a manufacturing business and the opportunities in international trade, and thus led to her next venture, importing petroleum by-products from Trinidad.

How can a growing business avoid such pitfalls? "There are two main issues to contend with," says Tommy Longest, 40, owner of Integrated Supply Management, a Detroit-based distributor of electrical and industrial equipment. "Financing is always a problem for a growing business. In addition, you have to look at each opportunity as it comes up to see if it fits into your growth plan." Following that principal, Longest's business has experienced positive, controlled growth over the last five years. "When I started my business," says Longest, "I concentrated on customers who paid their bills on time. From my experience in this industry, if customers pay bills promptly, you can finance a lot of your growth yourself."

Longest says that as his company got off the ground, his first growth-oriented decisions involved identifying the type of people he should bring in to help. "I decided to hire someone who could provide administrative support," he explains, "leaving me to spend time working with customers. Since then, I've added some sales and marketing employees, but I still go out and see people. That's the key to this business."

Personnel decisions also led to Longest creating a second company, ISM Electric. "Our original company provides services to utilities and local governments and property management companies," he says. "We saw an additional opportunity to work with contractors doing large projects. You need different expertise there, however, so I hired some people who had experience dealing with contractors."